engineering outsourcing - drivers and trends whitepaper

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Engineering Services Outsourcing A research on drivers and trends WHITEPAPER

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This whitepaper is based on a survey of over a 100 engineering leadership professionals to understand the latest trends in engineering outsourcing. The whitepaper addresses areas surveyed and interpretations with regards to why companies outsource their engineering, drivers, challenges, models of outsourcing, etc.

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Page 1: Engineering Outsourcing - Drivers and Trends Whitepaper

Engineering Services OutsourcingA research on drivers and trends

WHITEPAPER

Page 2: Engineering Outsourcing - Drivers and Trends Whitepaper

INTRODUCTION

1

Engineering Services Outsourcing Drivers and Trends

WHITEPAPER

THE RESEARCH COMPANY – QEDBATON

QEDbaton delivers high impact demand generation solutions to

technology companies across global markets. With a team of

100+ demand generation specialists, QEDbaton converses with

over 5000 technology decision makers & influencers monthly

while tracking over 15000 companies. QEDbaton has worked

with over 70 technology companies in the past 6 years. Its

experience spans verticals & horizontals in geographies such as

North America, Europe, Middle East, APAC and India.

QEDbaton's key services include:

Research Services - Market entry and market

intelligence reports, list building and contact discovery

and B2B surveys

Demand Generation Services - Lead nurturing, lead

qualification, appointment setting, event enrolment and

email direct marketing

·

·

THE RESEARCH SPONSOR – BWIR

Barry-Wehmiller International Resources (BWIR) is part of the

consulting platform of the $1.2 billion Barry-Wehmiller

Companies, Inc., a market leader in packaging, paper and paper-

converting capital equipment manufacturing, headquartered in

St. Louis, Missouri with global operations. BWIR brings the best

of both worlds - the dependability of a global billion dollar

company with the benefits of distributed operations. BWIR has

been recognized as a pioneer in outsourcing with a distributed

global network of talent and resources. ISO 9001:2008

certified, BWIR has validated systems and processes in place to

deliver superior services to their customers. In engineering

services, BWIR offers the entire gamut of services ranging from

product development, value engineering, sustaining

engineering, CAD services, controls and embedded systems

support. BWIR has over a decade pioneered setting up and

managing Global Engineering Centers (GECs) for a wide variety

of manufacturing companies, thereby helping them with faster

product development and reduce operational costs.

Page 3: Engineering Outsourcing - Drivers and Trends Whitepaper

2

INTRODUCTION

Engineering Services Outsourcing Drivers and Trends

WHITEPAPER

“The survey was conducted with a broad range of manufacturing companies

spread across geographies and revenues. The underlying idea was to get these

details from the practitioners and hence the survey was targeted at senior

engineering professionals in over a 100 manufacturing companies.”

Engineering Services Outsourcing (ESO) has emerged as one of the major outsourcing

initiatives in the last decade among the engineering and manufacturing organizations.

With the growth of reliable communication systems the new globalization paradigm

has changed from products that can be manufactured anywhere to services that can be

rendered anywhere.

This research is intended to understand the primary drivers to engineering

outsourcing, the trends and cues from the practitioners. The broad parameters

surveyed and analyzed were:

Outsourcing trends

Top outsourcing destinations

Outsourcing partner selection criteria

Type of engineering work outsourced

Prevalent engagement models·

ABOUT THE RESEARCH

Survey Demographics

13%

22%

22% 43%

Industrial Machinery Equipment Manufacturers

Oil & Gas Equipment Manufacturers

Consumer Electronics

Rotating Equipment Manufacturers

9%

30%

52%

9%

Northern Europe

Southern Europe

Western Europe

North America

17%

60%

4%

16%

Director/Head/ VP-

Engineering

Director/Head Product Development and R & D

Engineering Manager

Others

Page 4: Engineering Outsourcing - Drivers and Trends Whitepaper

OUTSOURCING STATISTICS

3

It was observed that companies in the North American

region were outsourcing more compared to the

European companies. It was also observed that a larger

percentage of mid-sized engineering companies (>$200

mn in revenue) were outsourcing engineering services

and setting up captives engineering centers in emerging

economies.

Another interesting observation was about 30% of the

companies surveyed ran their own engineering

centers in emerging economies, but also outsourced

engineering services to third party engineering service

providers as a de-risking strategy and to build a global

delivery model. A large percentage of these captive

engineering centers were setup as engineering centers to

support their manufacturing bases in emerging

economies.

Contrary to popular belief, the primary driver for

outsourcing does not seem to be cost. While companies

do want to take advantage of outsourcing at a lower cost,

the priority is to maintain flexibility and outsource non-

core tasks and augment engineering skills to get products

faster, better and cheaper to the market place. Some

respondents even mentioned that there are some

services that they outsource at a premium since this

model allows them the flexibility to convert fixed costs

into variable costs.

The biggest deterrent to outsourcing seems to be worries

with respect to IP concerns. The companies that have

chosen to outsourcing have dealt this by choosing the

right partners and selectively outsourcing non-core

activities. In some cases, if the work content was very

critical, the companies chose to take advantage of a global

delivery model and executed it onsite, rather than

offshoring it.

DRIVERS TO OUTSOURCE

Engineering Services Outsourcing Drivers and Trends

50%50%

Outsourcing Statistics

Have outsourced Engineering

Have not outsourcing Engineering

WHITEPAPER

Reasons for outsourcing

4.13

3.77

3.14

2.65

Reasons for not outsourcing

59.09%

45.45%

22.73%

13.64%

Flexible arrangement to handle sudden spikes of work

Availability of skills

Outsourcing non core activities

Cut down operational costs

Lesser volume of work

Fear of losing intellectual property

Work requires high degree of domain expertise

Concerns with respect to managing the external team

Page 5: Engineering Outsourcing - Drivers and Trends Whitepaper

PREFERRED OUTSOURCING DESTINATIONS

4

India, followed by China have clearly emerged as the

most preferred destinations when it comes to

offshoring engineering services or to setup captive

engineering centers. The respondents attributed the

reasons for this as cost arbitrage, strong

manufacturing base, emerging local demand and a

large talent pool.

While India (ranked as the top offshoring location)

has the advantage in terms of English language skills,

cultural compatibility with the West, a robust

political and legal system, and a better perception of

protecting Intellectual Property (IP), China (the

second ranked offshoring location) has much better

infrastructure and a well-developed manufacturing

base. Other emerging destinations include Taiwan

(Computing Systems), Ireland (Medical Devices),

Poland and Brazil (Construction/Heavy Machinery).

OUTSOURCING PARTNER SELECTION CRITERIA

It was observed that availability of skills is the

primary driver for selecting a partner. Ease of

communication and cost are secondary drivers for

selecting a partner. It was also observed that most

manufacturers chose their outsourcing partners

without bias of offshoring destination except in cases

where manufacturers chose partners based on

proximity to manufacturing base.

Engineering Services Outsourcing Drivers and Trends

54%

23%

Preferred outsourcing destinations

23%

OthersIndia China

WHITEPAPER

Outsourcing partner selection criteria

4.19

3.90

3.80

3.16

2.89

2.43

1.30Proximity to customers

Proximity to production plant

Cost

Customer references

Infrastructure available with the vendor

Domain expertise / Product knowledge of the

Ease of Communication

Page 6: Engineering Outsourcing - Drivers and Trends Whitepaper

TYPES OF SERVICES OUTSOURCED

5

Product development & value engineering emerged as

the top service outsourced correlating with the fact that

the top partner selection criteria was availability of skills.

But it is intriguing that the top reason for outsourcing

was flexibility to handle sudden spikes of work, which

did not seem to correlate with the type of services

outsourced. In discussion with a random set of

re s p o n d e n t s , m o s t a c k n o wl e d g e d t h a t

p ro d u c t development initiatives usually take a back

seat when they are filled with sustenance engineering/

order fulfillment jobs and this extends their product

development lifecycles.

Most respondents indicated that project based

engagement models were favored more than Resource

Based engagement models. To derive the benefit of a

long-term relationship and knowledge retention, most

manufacturers had dedicated teams retained with their

outsourcing partners. But, to maintain accountability

and to demonstrate value they were running project-

based engagements within these retained dedicated

teams to maximize output. The Service Level

Agreements in these cases were clearly based on hours

allocated for task completion.

PREFERRED ENGAGEMENT MODELS

The average satisfaction level with the quality of services

provided by their existing outsourcing partners stood at

4 on a scale of 1 to 5. Manufacturers that gave lower

ratings cited the main reasons as not being happy with

the amount of time being spent on training & partner

interaction and a few quality concerns.

It was also observed that most manufacturers had

multiple outsourcing partners as a de-risking strategy.

The large manufacturers echoed that once they reached a

large scale and steady state of operations with a

particular partner, they felt it is necessary to diversify to

other partners.

Engineering Services Outsourcing Drivers and Trends

27.78%

27.78%

38.89%

50.00%

77.78%

Value Engineering

Controls Engineering

Sustenance Engineering

CAD Technologies

New Product Development

Engg. services outsourced to partners

Preferred engagement models

Project based

Resource based

Both

30%

60%

10%

WHITEPAPER

Page 7: Engineering Outsourcing - Drivers and Trends Whitepaper

CONCLUSION

6

Based on the survey analysis, it is clear that Engineering Services Outsourcing is a

practice that is fast catching up with manufacturers. Almost all manufacturers are faced

with typical engineering challenges of reducing budgets and pressures of faster, better

and cheaper product development. With the availability of advanced communication

technologies, global delivery of services has been made much easier, which is evident

from the continuous growth of outsourcing of services from the manufacturing

industry. Most small and mid-market manufacturing companies are also talking about

outsourcing and it is no longer a service accessible only by the large companies.

While outsourcing presents a huge opportunity beyond doubt, it also comes with its

share of challenges such as IP security and communication. The more established

service providers have clearly defined processes and systems to handle these and that is

what manufacturing companies are looking for. The expectation is that the service

providers will lead them into a smooth outsourcing relationship through a process

based approach.

Most manufacturers acknowledge that their outsourcing relationships have been

successful because they believed that outsourcing is a long-term strategy for their

organizations and have taken the right steps to ensure that these relationships grow and

prosper.

The following are some criteria that stand out for evaluating suitable engineering

outsourcing service providers among others.

1. Availability of customizable engagement models with scalability to offer

flexibility to manage sudden spikes

2. Availability of a global delivery model for better communication and ease of

operation

3. Access to large pool of appropriate skills

4. A process driven approach to outsourcing

5. The ability to drive SLA based engagements

Engineering Services Outsourcing Drivers and Trends

WHITEPAPER

Page 8: Engineering Outsourcing - Drivers and Trends Whitepaper

About BWIR

Barry-Wehmiller International Resources (BWIR) is part of the consulting platform of the $ 1.2 billion Barry-Wehmiller Companies, Inc., a market leader in packaging, paper and paper-converting capital equipment manufacturing, headquartered in St. Louis, Missouri with global operations. BWIR brings the best of both worlds - the dependability of a global billion dollar company with the benefits of distributed operations. BWIR has been recognized as a pioneer in outsourcing with a distributed global network of talent and resources. ISO 9001:2008 certified, BWIR has validated systems and processes in place to deliver superior services to our customers.

USA

Phone: +1 (314) 862 8000 | Fax: +1 (314) 862 4154

Toll free: +1 (800) 862-8020

8020, Forsyth Boulevard, St Louis, MO 63105

INDIA

MPL Silicon Towers, 23 - 1/B3, Velachery-Tambaram Road

Pallikaranai, Chennai - 600 100

Phone: +91 (44) - 4390 9100 | Fax: +91 (44) - 4390 9211

Email: [email protected] | Web: www.bwir.com